Recap of WWE’s 2012 fourth quarter earnings conference call

WWE held its 2012 fourth quarter conference call on Thursday with its shareholders, WWE Chairman and CEO Vince McMahon and WWE CFO George Barrios.

Vince McMahon first joined the call, here are some of the highlights:

WWE Studios increased 57 percent.

WWE went way up with digital media and TV rights.

There was an improved PPV profit & home video profit by 2 million each.

Facebook & Twitter followers grew 100 percent.

WWE has the #2 action figure out there currently.

McMahon touted that it was a “really good” 4th quarter.

McMahon touted the Susan Komen breast cancer awareness, the Rolling Stones PPV and the National Guard during the 4th quarter, saying that the Rolling Stones PPV opened up new opportunities, although McMahon didn’t go into what they were.

McMahon noted the new deal with Take-Two to produce WWE videogames, saying he was “excited” about it.

WWE CFO George Barrios then joined the call, here are some of the highlights:

Barrios noted the change in plans for WWE Studios and that core business did very well.

Barrios noted that PPV & home video business did well and they are working on growth in talent development.

WWE went from 4 to 6 and a half hours per week of TV content from 2011 to 2012.

WWE doubled its social media following from 2011 to 2012, with now 130 million followers on Facebook & Twitter.

Barrios noted the new partnerships with Hulu & YouTube in 2012.

PPV revenue went up 4 percent in the 4th quarter, due to getting rid of one PPV event that was there in the 4th quarter of 2011 (Vengance) and the higher price of HD PPVs.

International live event attendance went down 11% and domestic live event attendance went down 5% in the 4th quarter, due to holding 8 less international dates in the quarter.

WWE Studios broke even in the 4th quarter, compared to the 4th quarter in 2011

Barrios noted that the change in strategy would help WWE Studios go in the right direction.

Adjusted net income went down 28 percent in the 4th quarter and 11 percent for 2012 overall, due to increased operating expenses and staffing costs.

Free cash flow went down 17 percent from the prior year.

Barrios goes over how content creation and moneziation of digital products will increase WWE’s revenue over time, including with the potential WWE Network.

Barrios notes that WWE’s content value would hopefully go up 5 to 14 percent in 2013.

In 2012, the average viewers of RAW and Smackdown were more than the average numbers of every other cable channel in primetime.

Barrios noted that a premium subscription model is the best way to go for the potential WWE Network with an hopeful estitmate of 2 to 4 million subscribers at a “steady state”.

Barrios brought up that all PPV events, excluding WrestleMania, would be part of the subscription model.

Barrios said that the pay scale would range from $12.99 to $14.99 a month and the PPV events would still be available “a la carte” for non-subscribers of the Network.

Barrios said that the Network would provide a “transformative growth” for WWE.

Barrios also noted that WWE would buying a new corporate jet and replacing the old one.

They then went to the Q&A portion of the call, taking questions from shareholders. Here are the highlights:

With the TV deals for RAW and Smackdown, Barrios noted that the deals in the US, the UK and India will be re-negotitated over the next few years and that RAW & Smackdown will not be brought over to the potential WWE network. McMahon noted that its important for those shows to be able to promote the potential Network.

When asked about when the Network would launch, Barrios said they are done with prognosticating when the Network is set to launch. They are optimistic but they are no longer going to be pushing dates of when it will launch.

With how the Network would “cannibalize” the PPV market, Barrios noted that WrestleMania counts for half their revenue, so they would only be a losing a little bit by moving all the other PPVs to the planned WWE Network subscription model so that viewers could subscribe to the Network without having to pay a big PPV monthly bill each month.

On the future of WWE video games, Barrios noted that they were “behind the curve” in terms of using social media with the video games. They were happy with the deal with THQ, but Take-Two “blew them away” with their presentation and the ability to have the video games on multiple platforms, including mobile games. The new deal is different than the THQ deal, but it will be the same financially as long as the games sell.

Barrios also noted that the THQ bankruptcy cost WWE $4-5 million and that in the 2013 1st quarter, the game revenue will go down because while they got advance royalty from the new Take-Two deal, they will lose money due to the THQ bankruptcy and the loss of potential revenue and royalties.

A caller asked about if the Network would have all-PG content, or would be it a mix of stuff with pushing the envelope. McMahon said the Network would have a mix, but it would depend on the time of the day of when to best use their library. McMahon also noted they have that opportunity to push the envelope with their content through home video.

On WWE Studios, McMahon said that the success of “Dead Man Down” and “The Call” would determine if their new strategy on WWE Studios will work over time, but they are not gonna give out any domestic box office targets on those 2 movies. Barrios noted that they are distributed through their partner, so initially, they will not be receiving any revenue from the films, but they will over time through the net basis.

On how the PPV model would change with the Network, Barrios said they did not want to get into that at this time. When the launch of the Network gets closer, they will reveal more on that.

Barrios noted that WWE’s TV rights fees of $40 million would stay the same going forward.

On subscribers for the Network, Barrios said that they would need at least 1 million subscribers to “break even”. At full distribution, they could reach around 3-4 million subscribers, depending on how fast they get carried by the cable companies and how quick it reaches potential subscribers. Barrios noted that it will depend with a company by company basis. In closing, within 6 to 12 months of the Network’s initial launch, they will then know how their model is working out.